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April 18, 2018

Pay equity laws: What you need to know

At least 23 states have already introduced bills concerning equal pay, salary history inquiries, and wage transparency in 2018. Here, Ceridian Compliance Counsel Emerson Beishline provides an overview of activities in the U.S., and what they mean for employers.

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April is Celebrate Diversity Month and at least 23 states have already introduced bills concerning equal pay, salary history inquiries, and wage transparency in 2018.

Legislators in these states are seeking to put an end to pay disparities between men and women in several different ways. Some legislators have introduced bills simply making it illegal to pay employees differently based on gender for similar work. Other legislators are seeking to ban salary history inquiries with the idea that past salaries often inform future salary offers. Finally, many legislators are looking to ban employers from retaliating against employees who choose to discuss their wages with coworkers.

What happens next?

Pay equity laws in four states and Puerto Rico, as well as New York City and San Francisco, are already in effect or soon will be. Washington State was the first state to pass pay equity legislation in 2018, choosing to make significant amendments to its existing equal pay statute. New Jersey Governor Phil Murphy is expected to follow suit and has indicated that he intends to sign an equal pay law on April 24.

In addition to introducing a more traditional pay equity law, legislators in Rhode Island are seeking to pass a first-of-its-kind bill that would require employers of 100 or more employees to annually report information regarding compensation and hours worked for employees by gender, race, ethnicity, and job category to the state Department of Labor and Training.

Other states have decided to take an opposing position to the nationwide trend to increase opportunities for pay equity. Michigan has enacted a law to prohibit local governments from regulating any information – including questions around salary history – employers can request from applicants and prospective employees during the interview process.

Wisconsin Governor Scott Walker is expected to sign a bill that seeks to prohibit local governments from enacting laws prohibiting employers from requesting salary history information from prospective employees.

While state legislators move to introduce pay equity laws around the country, federal courts continue to expand protections under the Equal Protection Act. Last week, the Ninth Circuit Court of Appeals went farther than any other federal circuit court and held that prior salary alone, or in combination with other factors, cannot be used to set initial wages at a new job, and cannot be a factor in justifying a pay gap between men and women. However, the Court did not decide whether or under what circumstances past salary may play a role during an individualized salary negotiation.

Learn more about how HCM tools provide insights into pay gaps, and help organizations manage compliance.

What does this mean for employers?

State and local governments often have wildly different and layered pay equity requirements. Federal court decisions interpreting the Equal Protection Act also complicate how salary history can be used by some employers. Employers with employees in different states and localities may want to consider establishing uniform policies around equal pay, salary history inquiries, and wage transparency to avoid inadvertently breaking the law.

One study of 838 compensation and benefit professionals by SHRM found that 37% of employers have implemented a policy prohibiting all hiring managers and recruiters from asking about a candidate’s salary history at all U.S. locations. As more jurisdictions continue to pass salary history inquiry laws, 40% of employers that have yet to implement a nationwide policy banning salary history inquiries have said that they are likely to adopt such a policy in the next 12 months.

Regardless of how employers decide to tackle this issue, they may wish to carefully monitor existing and proposed pay equity laws in the jurisdictions in which they operate because many jurisdictions impose serious penalties for violations.

Related: The Roundup: The conversations around Equal Pay Day

Disclaimer: The information provided in this post is provided for informational purposes only and should not be relied upon or construed as legal advice and does not create an attorney-client relationship. You should review with your legal advisors how the laws identified in this post may apply to your specific situation.

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